It’s that dreaded time of the year – tax season. Hopefully you don’t owe anything to the government come April 15, but if you do, is there a way to pay Uncle Sam and also earn benefits for yourself at the same time? There is, and I’m going to show you the math behind how paying your taxes with a rewards credit card can work to your benefit.
Paying your taxes with a mileage earning credit card
Paying your taxes with a mileage earning credit card is a straightforward way to boost your frequent flyer account balance. But isn’t there a catch? Sort of. To make a tax payment with a credit card you will have to pay an additional 1.87% (using Pay USA Tax, for example).
So, if your balance owed is $1,000, you would end up paying an additional $18.70. That equates to 1.87 cents per mile, which is well within the range in which I recommend earning miles. Because the percentage is flat for credit card use, this 1.87 cents per mile is scalable to any amount of taxes paid, making this a good deal no matter how much you owe.
Fees for paying state taxes may vary by state and vendor. The rule of thumb is that if you can earn miles for about 2.5 cents or less per mile, it’s worth doing. After all, I routinely help clients spend their miles for five to ten cents each.
Two important things to keep in mind about paying your taxes with rewards credit cards
- You’ll want to pay with a card tied to one of the most valuable mileage programs – ideally Alaska, American, American Express Membership Rewards, Starwood, United or US Airways. These programs have the most valuable points. Notice that Delta is not on this list.
- If you are using cash back rewards programs or pseudo-airline programs like Capital One’s Rewards program DO NOT pay with one of these cards, as you’ll only earn about one cent per point in redemptive value, meaning you’ll lose money on the deal.
If you own a business, paying taxes with a rewards credit card can be really significant.
Using these guidelines, earn yourself some miles at minimal cost on a bill you have to pay anyway. The difference between the cost per mile and the return per mile is pure gravy for you or your business.